HR Management & Compliance

Avoiding a Clash Over FLSA Contractor Classifications

Before they find themselves under a wage enforcement microscope, employers need to be aware of potential problems and misclassification errors when designating workers as independent contractors instead of standard employees.

The U.S. Department of Labor has had the misclassification of workers squarely in its cross hairs for a while. In particular the designation of “independent contractor” has come under scrutiny. The agency has warned employers to be very careful that they are not inappropriately dubbing workers as independent contractors that should be classified as regular employees.

According to DOL, it netted more than $5 million in back wages in 2011 for minimum wage and overtime violations under the Fair Labor Standards Act that resulted from employees being misclassified as independent contractors. The agency has signed agreements with 13 states as of press time to collaborate on enforcement and outreach efforts.

For employers in many industries, it’s important to take note of this scrutiny and do some proactive housekeeping to steer clear of potential problems.

Employers should think about the services a contractor performs, the contractors profit/loss potential and a contractor’s investment in facilities and tools when thinking about whether they are truly a contractor and not an employee.

The FLSA also includes in its definitions factors such as the permanence of the relationship between a worker and an employer and the degree of skill required to perform the work.

More information about classifying independent contractors and regular employees is available in Thompson’s FLSA library.

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